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More Than You Ever Wanted to Know About Sub Chapter S Corporations Presented by: Bill Parrish.

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Presentation on theme: "More Than You Ever Wanted to Know About Sub Chapter S Corporations Presented by: Bill Parrish."— Presentation transcript:

1 More Than You Ever Wanted to Know About Sub Chapter S Corporations Presented by: Bill Parrish

2 Most Popular Business Entity  LLCs Are Not Overtaking  Blend of Features of Partnership and C Corps  Restricted Ownership Rules  Election Requirements

3 Compensation Issues  Reasonable Compensation Too Little Family Income Shifting  Excessive Compensation  Constructive Distributions  Government Compliance Initiatives

4 Shareholder Benefit Issues  2% Shareholder Status Medical Benefits Health & Accident Insurance Premiums Health Savings Accounts  Payroll Taxes on Benefits to Shareholders

5 Office in Home  Different Than Sole Proprietorship  Different Than Partnership  Treated as Itemized Deduction  Subject to 2% AGI Limit  Circumstances Must be Factual

6 Distributions  Earnings & Profits Account (E&P)  Accumulated Earnings & Profits Account (AEP)  Accumulated Adjustments Account (AAA)  Distributions With No AEP  Distributions With AEP

7 Other Schedule M2 Accounts  Undistributed Taxable Income Previously Taxed (PTI) Earnings as S Corp between 1958 & 1982  Other Adjustments Account (OAA) Catch All Account

8 Ordering of Distributions Layers of a Sandwich  All S Corps to the Extent of AAA  To Shareholders with pre-1983 PTI  S Corporations with AEP  All Other Distributions

9 Basis Issues  Inside Basis Usually Tracked at the Corp Level Equity Basis Loan Basis  Outside Basis Usually Tracked at the Shareholder Level Stock Basis Other Basis

10 S Corporation Pitfalls  Disproportionate Distributions  Distributions in Excess of Basis  Limits on Benefits to 2% Shareholders  Limitations on Pass Through of Losses

11 Separately Stated Items  Interest Income  Dividend Income  Capital Gains  Charitable Contributions  Section 179 Depreciation  Certain Losses

12 Advantages of S Corporation Status  Avoid Double Taxation on Profits  Allows Limited Pass Through of Losses  Provides Planning Opportunities

13 Planning Opportunities  Structure of Distributions  Limited Opportunities to Slowly Transfer Family Business  Protection of Personal Assets  Employment of Family Members  Ability to Enjoin Employees in Partial Ownership

14 For More Information  Bill Parrish 


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